Dogecoin ( DOGE 2.31% ) is already beating Bitcoin ( BTC 0.91% ) in some ways. In others, the digital coin with the adorable dog mascot is miles and miles behind the largest and oldest cryptocurrency. Moreover, the technical platforms are quite similar since Doge is a distant descendant of the Bitcoin system — with some tweaks along the way.
After coasting along with minor price gains over several years, Dogecoin entered the spotlight during the social media whirlwind of early 2021. Coin prices have retreated a long way from the peak of that craze, but Dogecoin still outperformed Bitcoin over the last two years:
Is Dogecoin poised to kick Bitcoin off the crypto-sector’s throne in the long run?
What’s the difference?
First, let’s have a short history lesson.
Bitcoin was arguably the first cryptocurrency on the planet. Based on a 2008 white paper by a still-unknown author by the code name Satoshi Nakamoto, the first Bitcoin block was mined in 2009 and the first commercial transaction took place the next year. Back then, 10,000 Bitcoins bought two pizzas — a transaction that would be worth $4.1 million at today’s Bitcoin prices.
Many enthusiasts mined Bitcoin with their own computers and graphics cards, at first. It wasn’t long before specialized Bitcoin mining semiconductors appeared on the market, ripping through the mining algorithms at speeds that even the best PC hardware couldn’t match. In response to this mining issue, Litecoin ( LTC -0.46% ) was created in 2011 as a payments-focused Bitcoin clone with a couple of key tweaks.
This cryptocurrency uses a different mining algorithm known as scrypt, a deliberate choice that makes it better suited for ordinary computer systems. Furthermore, Litecoin’s technical parameters are different, resulting in faster transaction settlements and a lifetime maximum of 84 million coins versus 21 million for Bitcoin. The downside to these efficiency improvements is a less ironclad security system that might be easier to hack.
Next in this heritage chain was Junkcoin, an experimental offspring of Litecoin that stuck with the PC-friendly scrypt system and raised the number of total coins. Luckycoin followed as a Junkcoin clone, boosting the coin cap even further. These days, Litecoin remains a serious cryptocurrency, but the Junkcoin and Luckycoin stepping stones are mere footnotes in cryptocurrency history.
Finally, Dogecoin began life in 2013 as a tweaked clone of Luckycoin. We’re still looking at the scrypt mining algorithm, but the cap on lifetime coin production is gone. Each new Dogecoin block is also rewarded with 10,000 new tokens, compared to 50 Litecoins or 6.25 Bitcoins per freshly mined block of those cryptocurrencies.
What does it mean?
Here’s what we have after that step-by-step chain of cryptocurrency evolution.
Bitcoin is a dead-serious cryptocurrency, designed as a secure system for the long-term store of value. You can also pay for things with this digital coin, but money transfers take a while and come with significant transaction fees. Today, Bitcoin’s total market value stands at $868 billion and the price per coin is approximately $41,300.
In the other corner, Dogecoin was originally launched as a joke between two programmers with no real long-term goals and ambitions. The technical tweaks have created a more nimble system for digital payments with faster and cheaper transactions, but at the cost of weaker data security. The lack of a hard cap on the number of Dogecoin tokens also points to massive inflation in the long run. Dogecoin’s market value adds up to $18.9 billion at a price of $0.14 per coin.
Bitcoin miners have to use specialized chips because PC processors and graphics cards simply can’t compete against chips specially designed to process the underlying SHA-256 encryption routine. Dogecoin’s scrypt system is more inviting to ordinary hardware with a large supply of memory chips, so it’s a better choice for crypto-mining enthusiasts with fast graphics cards.
Doge really isn’t the next Bitcoin
At the end of the day, these two cryptocurrencies have a lot of shared DNA and history but are very different when it comes to real-world utility. If anything, Dogecoin could challenge Litecoin or Ripple as an efficient money-transfer platform, but even that ambition seems to fall short when you consider Dogecoin’s incoming inflation and its lighter focus on data security.
The coin has one more thing going for it, and that’s the lighthearted marketing message with microscopic coin prices and a cute mascot. In the hands of a master marketer, that could be enough to create a cryptocurrency with long-term value. Maybe. Perhaps. You never know.
But Dogecoin will never take Bitcoin’s place in the cryptocurrency universe because that was never the plan in the first place.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.